By a 6–0 vote, the Texas Supreme Court has handed a major victory to oil and gas operators in a ruling that clarifies one of the murkier corners of mineral law: who owns the massive volumes of produced water generated during drilling. On June 27, the court sided with COG Operating LLC in a high-stakes dispute with surface rights owners and water services company Cactus Water, confirming that produced water is legally the property of the operator holding the oil and gas lease, not the landowner.
The case, Cactus Water Services v. COG Operating, is the first of its kind to reach the state’s highest court and carries implications far beyond the dusty stretches of Reeves County. As Texas braces for a future shaped by water scarcity, lithium extraction, and growing legal and environmental scrutiny around fracking byproducts, the ruling gives operators a clearer runway for investing in infrastructure and innovation tied to what was once treated as a nuisance: wastewater.
The justices made it plain. Produced water, even though it contains actual water molecules, is considered oil and gas waste and falls squarely under the mineral estate, not the surface estate. As Justice John Devine put it in the court’s opinion, “Produced water is not water. While it contains water molecules, the solution itself is waste, a horse of an entirely different color.”
Produced Water’s Legal Identity Gets a Definition
For decades, produced water was nothing more than an expensive headache. It’s what comes back up after operators pump millions of gallons of water, sand, and chemicals underground to release oil and gas trapped in shale. The result is a briny cocktail that often includes salt, arsenic, heavy metals, and other contaminants. In the case before the court, COG had drilled 72 wells on a massive 37,000-acre lease held by the Collier family. Those wells produced over 52 million barrels of wastewater, and COG spent more than $21 million to dispose of it.
That was the status quo, until water started to look more like an opportunity than a burden.
The Colliers decided to monetize the waste, signing a deal with Houston-based Cactus Water Services that gave them rights to collect, treat, and potentially sell the produced water. That prompted a lawsuit from COG in 2020, claiming the water was theirs under the terms of the lease. Trial and appeals courts both ruled in COG’s favor, and the Supreme Court affirmed the decision.
Oil and gas attorneys like John McFarland in Austin say the ruling makes sense. “It’s not surprising. It’s practical,” he said. “For a long time, this stuff had no value and cost companies millions to manage. But now that there’s real potential—whether for crop irrigation, mineral extraction, or lithium recovery, it’s important to know who holds the rights.”
That lithium angle is becoming more than hypothetical. Element3, a startup working in the Permian Basin, announced last year it had successfully extracted lithium from produced water. That raises a new question: If lithium isn’t part of the hydrocarbons leased under the mineral estate, does it still belong to the operator?
“The court didn’t address that,” McFarland said. “That’s going to be another legal battleground. The mineral owner is going to want a cut of that value at some point.”
A New Commodity Brings New Legal Risk
The legal clarity comes just as the energy industry, and the state of Texas, are racing to reimagine what produced water can become.
Pilot projects are already under way to use treated water for agriculture. Others see an opening in battery metals. The stakes are high: whoever owns the water controls the revenue tied to these ventures. And now, thanks to the court’s decision, operators can move forward with a stronger claim to the rights.
But the ruling doesn’t eliminate all risk. McFarland noted that operators like COG have worried about liability if third-party companies handle the water. That concern prompted lawmakers to pass House Bill 49 this year, shielding producers from lawsuits related to water they sell or transfer. Signed into law by Gov. Greg Abbott, the bill gives companies some breathing room as they explore new uses for their byproduct.
The ruling also lays out a roadmap for surface owners who want to retain control of water rights in the future. As the court noted, nothing stops landowners from negotiating those terms up front, provided it’s explicitly written into the lease. That puts more pressure on attorneys, landmen, and mineral owners to be precise when drafting and reviewing contracts.
The Texas Oil and Gas Association, which filed a brief in support of COG, called the ruling essential to preserving the regulatory framework that governs waste management in the state. A decision for Cactus, they argued, would have upended decades of policy and introduced chaos into a system already under strain from population growth, seismic activity, and competing water demands.
Landowner advocates and environmental groups, meanwhile, had hoped for a different result. The Texas Land and Mineral Owners Association, one of several groups backing Cactus, argued that the water is distinct from the oil and gas extracted and should fall under the rule of capture. In Texas, groundwater belongs to the surface owner, and that rule has long been a cornerstone of landowner rights.
But the court didn’t see it that way. Their ruling makes clear that produced water is legally tied to the hydrocarbons that brought it to the surface. As far as the lease is concerned, it’s waste, not water.
Looking Ahead: More Court Fights, More Industry Change
The ruling won’t be the last word on the matter. Legal experts expect additional litigation around the byproducts of produced water, especially as its potential economic value grows. Lithium, in particular, is shaping up to be the next major flashpoint. Since lithium isn’t a hydrocarbon, it may fall outside standard lease language. That could open the door to lawsuits between operators and mineral owners, or even between surface and mineral estates.
In the meantime, companies like COG have gained a valuable precedent. They now have a clearer path to building infrastructure, pursuing recycling technologies, or licensing their produced water for new ventures. At the same time, surface owners and their representatives will need to adapt, making sure future leases reflect the changing landscape of what’s considered waste, and what might actually be gold in disguise.
The stakes are rising, and the legal terrain is evolving fast. One thing’s clear: in Texas oil country, even the wastewater is worth fighting over.
